Appeals Court Curbs FTC’s Enforcement of Security Standards–LabMD v. FTC

This is an FTC enforcement action against LabMD. A LabMD billing manager installed a peer-to-peer file-sharing application called LimeWire and designated the “my documents” folder on her computer for sharing. This folder contained a 1,718 page file with names, dates of birth, social security numbers, lab test codes, and health insurance company information, of LabMD customers. A security remediation firm noticed this and tried to pitch LabMD for work. LabMD rebuffed the sales pitch, and the security firm sent the 1,718 page file to the FTC. The FTC issued an administrative complaint alleging LabMD committed an unfair act or practice by failing to adequately safeguard personal information on its networks. After discovery, LabMD brought a motion for summary judgment. The Commission denied the motion, and the matter proceeded to an evidentiary hearing. After the hearing, the ALJ dismissed the FTC’s complaint, finding that the FTC did not adequately allege injury…

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